Indictments Should Clear Path For Refunds to State and Block Energy Company Proposals to Resurrect Deregulation in CA

Santa Monica, CA — Nearly four years after private energy companies began to manipulate California’s deregulated energy market, the United States Justice Department has brought its first charges against an energy firm involved in the power crisis that occurred as a result of California’s ill-fated foray into energy deregulation. Reliant Energy, which at one point charged the state of California $1900 per megawatt-hour for electricity, or approximately 6300% more than the historic norm of $30/MwH, is charged with “fraudulent and manipulative trading practices.” Previously, an energy trader working for Enron pled guilty to charges of manipulating the market for profits, but this appears to be the first indictment of an energy corporation.

“Reliant was among a group of large energy companies that robbed California blind during deregulation, so this should be only the beginning of the indictments,” said Douglas Heller, Executive Director of the Foundation for Taxpayer and Consumer Rights (FTCR), who also argued that criminal charges alone are insufficient. “The energy industry treated California’s deregulation experiment like a license to steal and until the state’s taxpayers and consumers recoup tens of billions of dollars from these thieves, even convictions will be a hollow victory.”

The grand jury found that in June of 2000, which marked the beginning of the California energy crisis, Reliant intentionally shut down power generation in order to create a phony power shortage and drive up market prices. A variety of schemes to manipulate the market involving other power companies including Enron, Duke, AES and Williams have also been identified in the years since the energy crisis caused blackouts and extreme price spikes in California.

According to FTCR, energy company manipulation of the California energy market allowed the firms to overcharge California consumers by more than $20 billion between 2000 and 2001 and to excessively price long-term energy contracts with the state by approximately $22 billion dollars. (Download FTCR’s study on market manipulation at: http://www.consumerwatchdog.org/utilities/rp/rp002193.pdf). In its efforts to force companies to refund the stolen money, the state of California has been rebuffed by the Federal Energy Regulatory Commission (FERC), the agency responsible for considering the requested refunds.

“Now that they have indicted an energy company for a massive fraud against California, it is time for the federal government to stop protecting the power industry and force the companies to refund all the stolen money,” said Heller.

Noting that the FERC is also responsible for regulating power sold in the wholesale energy market, FTCR called on the agency to subject Reliant to cost of service regulation — in which prices are set by the regulatory agency — and bar the company from selling electricity at unregulated prices. Additionally, the group said that the FERC should immediately suspend all unregulated energy sales and return wholesale power pricing to a regulated process until the full extent of criminal behavior in the California market is determined.

California Legislation to Return to Partial Deregulation Should Be Rejected

In light of the indictments, California lawmakers should shelve legislative proposals that would allow unregulated energy companies to operate in the California energy market, said FTCR. Proposals by both Assembly Republicans (AB 428, Richman) and Democrats (AB 2006, Nunez) would allow private energy companies like Reliant to sell electricity in California with no regulatory oversight of prices.

“Energy deregulation was a miserable and total failure, so it’s shocking that any lawmaker would want to keep it alive in California. The Reliant indictment is yet more proof that a service as vital to the economy and public safety as electricity should not be left in the hands of unregulated power companies that have a track record of lying, cheating and stealing,” said Heller.

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